It’s not you, we promise. Applying for a home loan a few years back was significantly easier. Now, it’s a frustrating, slow and painful process to go through. But what’s changed? Why does it suddenly feel like we’re pushing a metaphorical boulder up a hill when it comes to getting a mortgage? Well, after the findings from the ‘Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’ were released, the government has cracked down on lenders like never before. Borrowing power has tightened significantly.
Whilst we respect the recommendations required to improve the industry as a whole, the experience has undoubtedly impacted how financial institutions choose to lend to customers. The good news? You can still get a loan. The bad news? There’s much more effort involved.
There are more proverbial hoops to jump through, more paperwork to prep and yes, many more questions hurled your way. If you think the experience is excruciating for you as a customer, it’s significantly worse for us as mortgage brokers. We can promise you that. So if you’re in the market for a home loan, brace yourselves people, here’s what to expect:
Get your papers in order
Be prepared. Provide everything the lender requests of you. We mean everything when it comes to your paperwork. And, there’s really little-to-no point arguing with them either, as you’ll inevitably end up slowing down the process. Lenders are trying to paint a clearer picture of your financial situation and will expect much more than just typical mortgage application documents. In particular, they’ll ask for bank statements, transactional statements and statements of debt e.g. car financing or any other personal loans. We suggest having these prepared well in advance and always up-to-date.
Watch the lifestyle loading
Traditionally, lenders would have relied on the Henderson Poverty Index or the Household Expenditure Method (HEM) to work out your living expenses. This gave them a ball-park figure of your financial situation and would assess you off this (let’s not spend too much time dwelling on how ridiculous this practice is… that’s a whole topic in itself). However, it’s now your responsibility to share with lenders your living expenses – mortgages, bills, utilities, groceries, petrol, childcare and even how much you’re spending on entertainment (heaven’s above if you own a Netflix AND a Stan account).
If you’re already thinking that your general living expenses are high, it might be time to reassess your lifestyle and implement a budget. Preferably this would be something you’d be doing months in advance of applying for a loan. However, some lenders, if able to be proven, can recognise reasonable reductions in living expenses. A broker can help you through this process.
Consider that second cappuccino
That’s right, lenders are digging into your expenses even deeper. Are you a serial Afterpay user? Have a penchant for fine dining restaurants? Purchase a coffee every morning on your way to work? Whether you like it or not, day-to-day expenses and general spending habits are going to be put under the microscope. If you have any Afterpay accounts or accounts of a similar nature, we recommend finalising any balances or even better, closing them completely before going for that mortgage. The same applies even more so for credit cards – clear the debt and shut the accounts. In addition to this, curb your spending habits for at least three months (as a minimum) before going ahead with your application. Once you’ve done all that? Check if you’ve still got that HECS debt. Yes, they consider that a liability too.
Paying private school fees? They’re on to it
We know choosing to have a family means a surge in day-to-day expenses. However, for the first time, private school fees are now being considered a financial liability when families are being assessed for a mortgage. Considering that some of Sydney’s most expensive schools can have fees of $25,000 or more, you can see how this might affect someone’s borrowing power. Whilst there’s not a lot you can do to reduce these fees, it’s worth noting how much those school fees are costing you when it comes to you deciding how much you actually want to borrow.
Play the waiting game
Wait, wait, then wait again. From what we’ve discussed, it should be pretty clear that the process will most likely take longer than expected. Be prepared for lenders to keep coming back to you with more questions and more requests. We strongly recommend going through the pre-approval process before starting to look for a property. You’re going to have a stronger chance of not only getting your mortgage approved but getting it approved quicker.
All is not lost, we’ll find you the answer
At Talem Wealth, you’re in capable hands and are here to help when it comes to all of your mortgage needs. We have extensive knowledge of the industry and a deep understanding of the lending process. Over the years we’ve built strong relationships with mortgage providers and we’ll able to guide you in the right direction. We’ll do the majority of the leg work required to get a loan for you so you can be using your spare time doing something significantly more productive.
If you’re ready to explore your borrowing options, then speak with us today.